Determination of the coupon rate, Finance Basics

The partners are still unhappy about one of the features of your analysis, namely your assumption that the coupon rate of the bond is equal to 6% per annum. Their thinking is that it is the coupon rate which should be adjusted in such a way that the initial value of the bond is equal to the desired amount.

(a) Assume that the face value of the bond issue is equal to one million dollars and that the coupon rate is given by C = 6%+S where S is a spread which is chosen in such a way that the initial value of the issue is equal to par. Should S be positive or negative?

(b) Determine the value of the spread S under the assumptions that the strike price and the volatility of the relevant forward swap rate are given by K = 1and

σswap(t) = 0:41(T - t)e-0:65(T-t);

where T is the first fixing date of the underlying swap.

 

Posted Date: 2/18/2013 5:56:50 AM | Location : United States







Related Discussions:- Determination of the coupon rate, Assignment Help, Ask Question on Determination of the coupon rate, Get Answer, Expert's Help, Determination of the coupon rate Discussions

Write discussion on Determination of the coupon rate
Your posts are moderated
Related Questions
If Metropolis Healthcare Systems have 1,150,000 in cash. How long will it take them to accumulate 2,000,000 in cash? Assume an interest rate of 5%..

Y ou are interested in the value of Joes Shoe Corporation and its cost of capital. Suppose you believe that the assumptions of Miller-Modigliani's Proposition 1 (without taxes) are

Preparing Contract Note in the Stock Exchange Clerk takes the details of the day's transaction to the broker at the end of working day. Broker scrutinizes all transactions o

Financial management is very important for any organization as at the end what does matter is the money. An effective financial management is of high importance for ensuring the be

AsStudents will analyze and synthesize the financial reports of an organization of their choice and present their findings in a PowerPoint presentation (with completed Notes sectio

What are the Features of Stock Exchange The key features of stock exchange are as below: (1) Organised Market: Stock Exchange is an organized market. Each stock exchang

Debenture Finance A type of long term debt raised after a company sells debenture certificates to the holder and raises finance in return. The term debenture has its source fr


Primary Markets - Financial Markets These are markets such deal along with securities that have been issued for the first moment. The money flows directly from transferor or t

How would you explain the value of financial planning to friends or family? Which topics will you discuss with children in your life? Which topics do you feel are most imp